How do you calculate a mortgage?

Once the maximum financing frame is determined, the mortgage is often split in practice into two tiers. The first tier covers roughly up to two‑thirds of the lending value and is considered particularly well secured. The higher second tier covers the upper, riskier portion and usually has to be amortized within around 15 years or by retirement so that the loan‑to‑value ratio falls back to about two‑thirds. Whether amortization is done directly and the nominal debt is reduced or indirectly via pillar 3a by pledging pension assets affects ongoing liquidity but does not change the bank’s affordability calculation.

For ongoing affordability the bank uses a deliberately conservative calculation. Interest is taken with an increased, imputed rate, an annual amortization for the second tier is added, and maintenance and ancillary costs are included as a flat rate. As a guideline, these housing costs should not exceed about one third of gross income. An example illustrates the magnitudes: for a purchase price of CHF 1,000,000 and a mortgage of 80 percent, there is CHF 800,000 of borrowed capital. With an imputed interest rate of 5 percent, CHF 40,000 in interest costs arise per year. The second tier is roughly CHF 133,000 and leads over 15 years to about CHF 8,900 of annual amortization. For maintenance and ancillary costs about 1 percent of the property value, i.e. CHF 10,000, is often assumed. Together this results in an annual burden of approximately CHF 58,900 or just under CHF 4,900 per month, which must be affordable relative to income.

The concrete interest burden depends on the chosen product. Fixed‑rate mortgages secure an interest rate for several years and offer planning certainty, but can trigger an early repayment penalty if terminated prematurely. Money‑market mortgages based on SARON adjust periodically and can be cheaper in certain market phases but require higher risk tolerance. Many owners combine several tranches to stagger maturities and spread interest‑rate risk. For detailed repayment schedules, depending on the product either a straight‑line amortization of the second tier is applied or, for fully amortizing loans, a constant annuity is used, which can be calculated mathematically with the formula

Annuität = Kreditbetrag × i / (1 − (1 + i)^−n)

where i is the period interest rate and n is the number of periods.

It is important to keep lending ratios and affordability under review throughout the term. If market interest rates rise, the effective monthly burden increases, even if affordability was calculated with a buffer. If the market value of the property falls, the computed loan‑to‑value can increase, which may require additional amortization when the mortgage is renewed. Conversely, additional equity, faster amortization or more favourable interest offers improve the ratios and create reserves for maintenance and unforeseen expenses.

In the end, a solid calculation always links three levels: the maximum credit frame from lending value and equity, the ongoing affordability according to the affordability test, and the choice of an interest and amortization structure that matches one’s risk tolerance and planning horizon. Those who compare offers and understand the lenders’ assumptions not only get a better interest rate but also financing that remains robust across different interest‑rate environments.